Hamill: Most charity gifts no longer cut your taxes

Charities often advise that contributions can be deducted for federal income tax purposes.

It is generally not true. Charitable contributions are allowed as itemized deductions. More than 90% of all filers now use the standard deduction.

The standard deduction is an amount set by law that does not require any proof that you have any deductions.

For 2025, a married filer can claim $31,500. A single filer claims $15,750. These amounts are higher for seniors.

Because most people now use the standard deduction, charitable gifts do not usually offer a tax advantage.

Like many tax issues, the trick comes in taking advantage of the exceptions. This year adds a new exception with a few “clawbacks” of the allowed deduction.

One exception to the need to itemize that has been in the law since 2006 is a “qualified charitable distribution,” or QCD for short.

A QCD is a direct transfer from an IRA to a qualified charity. The taxpayer must be at least age 70 1/2 to make a QCD.

The QCD allows the IRA distribution, normally taxable, to be nontaxable. This is the same as including the income and claiming a deduction.

The QCD benefit does not require the taxpayer to itemize deductions. For 2025, the amount can be as high as $108,000 (this is $111,000 for 2026).

IRAs are “individual.” So, a married couple could make $222,000 of QCD transfers in 2026.

But even a person who makes annual gifts of $2,000 could benefit from substituting a QCD. Again, the person must be aged 70 1/2.

Gifts of capital gain property held for more than one year also create special benefits. The donor can deduct the fair market value of the property.

This allows the donor to escape the capital gains tax that would otherwise be owed on a sale. You must itemize deductions to take advantage of this benefit.

Many charities have established brokerage accounts to receive gifts of stock. If they do not, they should be willing to do so if asked.

Beginning in 2026, a limited deduction is allowed for those who do not itemize deductions. This is $1,000 for a single filer and $2,000 for married filing jointly.

The new non-itemizer deduction requires that the gift be in cash (which includes credit card payment).

Gifts of property or gifts to donor-advised funds will not qualify for the non-itemizer deduction.

The 2025 increase in allowed state and local tax deductions (to $40,000) will allow some people to start itemizing.

If the new limit allows someone to start itemizing, they could also receive a tax benefit for charitable gifts, perhaps not previously allowed.

Two new quirky limits apply beginning in 2026. First, charitable gifts are allowed only if they exceed 0.5% of adjusted gross income (AGI).

This means if someone has AGI of $200,000, the first $1,000 of gifts cannot be counted as a deductible charitable gift, even if they itemize.

A second limit applies to those in the highest tax bracket of 37%. The tax benefit of the charitable gift is limited to 35 %.

A married tax filer must have taxable income of $768,000 in 2026 to be in the top bracket. This is $640,600 for a single filer.

These two deduction cutbacks do not apply to a QCD. A QCD allows the IRA distribution to be excluded from income rather than claimed as a deduction.

Since the QCD is not reported as a deduction, the new limits do not apply. So even itemizers should use QCDs in 2026 if they are eligible.

Still a year away, in 2027, is a new tax credit for gifts to qualified scholarship-granting organizations, or SGOs.

An SGO must be approved by the state, so it is likely that some states will participate and others will not.

The SGO provides scholarships to students who have a family income of 300% or less of the median local income. The specific rules will come this year.

A tax credit is a dollar-for-dollar reduction in your tax liability. The SGO credit is capped at $3,400 for married filers and $1,700 for single filers.

This means that a married couple could give $3,400 to an SGO, and it costs them nothing so long as they have a federal tax liability of $3,400.

The Treasury Department still needs to add some meat to the rules. States can then decide whether they want to participate.

Jim Hamill is the director of tax practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.